Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Retirees concerned about their retirement pot may breathe a sigh of relief to see both the average pension fund and annuity growth was positive in 2021. The volatility of pension funds in 2020 was evident, with a fall from a positive return of 14.4% in 2019 down to 4.9%. Consumers will now see 2021 returned a positive 9.5% average growth, although this will vary by individual fund. This is an encouraging sign that those looking to retire this year may have more in their pension pot to either take out an annuity or opt for drawdown. If they decide to annuitise all or part of their pension they will also find annuity income is up from last year too, providing them with a welcome income boost compared with those who retired in 2020.

“The impact the Coronavirus pandemic has had on consumers’ financial resilience is obvious, and this year the cost of living is expected to rise. Those intending to retire must ensure it is the right time and that they are prepared as much as possible for an increase in household expenses. Anyone planning to supplement their pension with interest from cash savings will have seen interest rates fall to record lows in 2021, with the market only slowly showing signs of stabilisation. Pension savers planning ahead for their retirement, but facing a potential income shortfall, could consider putting more into their pension or even open a Lifetime ISA for a Government 25% boost on their savings, but whichever they choose it’s wise to look at retirement projections sooner than later.

“Retirees who have little alternative than to take money out of their pension pot this year would be wise to seek advice before they do so. Dipping into pension pots was evident during the pandemic, under pension freedoms rules. According to HMRC, billions of pounds were taken out of pensions during Q1 2021 and so far, the total value of flexible withdrawals from pensions since flexibility changes in 2015 has exceeded £45 billion. Withdrawals may also have been made not just to fund a retirement gap, but perhaps given to family as early inheritance.

“An alternative to a pension pot dip could be to use a home to plug the retirement shortfall or help support family members, through equity release. The decision to release equity from a home requires careful thought, and a conversation with family members is wise so that all are aware of its impact on inheritance. However, a recent study by HUB Financial Solutions highlights that while the majority who plan to seek advice discuss this with their family, only 7% go on to involve them in meetings with a financial adviser. Those facing a shortfall in retirement would be wise to consider all their options carefully with an independent adviser and be very open with family on any impact it may have to ensure it’s the right choice.”